Categorizing ETFs

Comments on “The Individual Investor’s Guide to Exchange-Traded Funds 2018,” by Jaclyn N. McClellan in the August 2018 AAII Journal:

I always enjoy reading this comprehensive overview. I am interested in where the names for the groupings come from. I also wonder if there isn’t a need for a category that captures ETFs following some type of business logic as an identifier for stock. Particularly, I would identify the funds MOAT, CSD (and until recently and more descriptively SPUN) and PKW (not to mention their international counterparts MOTI and IPKW). These business strategies are different from the traditional market theory-based indexes.
—J. Dalgleish from California

Charles Rotblut responds:
The ETF categories are based on our long-running mutual fund guide. A few modifications have been made to account for categories more common among ETFs than mutual funds.

We’ve held off on specialty categories, such as corporate spin-offs and moats, to keep things consistent, allowing members to better compare funds and ensure that each category has an adequate number of funds.

I always look forward to the August issue of the AAII Journal and the associated spreadsheet file containing data on all the current exchange-traded funds (ETFs). Perhaps you could consider doing a similar analysis of closed-end funds (CEFs). You already have a format for publishing ETF and open-ended fund data. Could you use that format for collecting and publishing CEF data?
—Jared Bessert from Wisconsin

Charles Rotblut responds:
We do not have the same data on closed-end funds as we do for mutual funds and ETFs. Try the Closed-End Fund Association’s website (www.cefa.com). It has good information and a great screener. In our Best of the Web article, we also suggest CEF Connect (www.cefconnect.com).

Tracking Shadow Stock Returns

Comments on “Observations From Decades of Tracking Investment Newsletters,” an interview with Mark Hulbert, in the August 2018 AAII Journal:

The AAII model portfolios are in effect a market advisory letter. Has Mark Hulbert included them in his surveys? Any results to share?
—Richard Vroman from California

Charles Rotblut responds:
The purpose of the Model Shadow Stock Portfolio is to provide a real-world example of how individual investors can take academic theory and apply it to their own portfolios.

A return history for the Model Shadow Stock Portfolio can be found in the Model Portfolios section of our website (www.aaii.com/model-portfolios). In this section, you will also see details about our transactions, something most newsletters do not make available.

Convert to a Roth IRA Early

Comments on “Actions to Take During the Five Years Prior to Retirement,” from Briefly Noted in the August 2018 AAII Journal:

Nice points, however, in my experience one should consider Roth conversions much earlier. It seems reasonable to perform Roth conversions at any time when the extra income will be taxed at or below the anticipated in-retirement rate.
—S. Alexander from Ohio

How to Get Started in the Model Shadow Stock Portfolio

Comments on “The Model Shadow Stock Portfolio’s Origins and Newest Stock,” by John Bajkowski, in the July 2018 AAII Journal:

There are a lot of stocks in this portfolio. It would take quite an investment to buy and hold all of them. What would be a minimum amount of money to do that? I realize investment amounts and strategies are unique to every person.
—Debra Vaughan from California

Charles Rotblut responds:
It is suggested that those interested incorporating the Model Shadow Stock Portfolio approach into their own portfolios start with at least 10 stocks. AAII founder James Cloonan does not believe it is necessary to hold more than 20 stocks until a portfolio exceeds $1 million.

How much you allocate is a personal decision. A rule of thumb is that at $1,000 per stock, you will be losing between 1.0% to 1.4% to commissions, assuming brokerage fees of $4.95 to $6.95 per transaction. The more you allocate per stock, the lower these fees will be as a percentage of dollars invested.